They Should Have Seen It Coming

American Consumers Newsletter

They Should Have Seen It Coming

1. Hot Trends: THEY SHOULD HAVE SEEN IT COMING
2. Q & A: NET WORTH: HOW BAD IS IT?
3. Bet You Didn’t Know: GREAT STOCKING STUFFER!
4. All New: HOUSEHOLD SPENDING, BEST CUSTOMERS, WHO’S BUYING REPORTS, AMERICAN MEN, and AMERICAN WOMEN

1. Hot Trends

They Should Have Seen it Coming

The empty cash registers finally got their attention. Businesses large and small are in a panic, wondering where their customers went. Last week the Census Bureau reported that November 2008 retail sales were 7.4 percent below November 2007 sales–a record decline. More than a few captains of industry are expressing surprise at the severity of the downturn. But anyone with an Internet connection, a calculator, and a modicum of curiosity could have seen this coming. Middle Americans are in trouble and so are the businesses that have long ignored them.

Easy money. Entitlement. Short-term thinking. All go a long way toward explaining why businesses are hurting. During the credit expansion of the bubble years, companies grew complacent and lost touch with Middle America. Even as conditions worsened for the average American, there was money to be made by selling bigger houses, bigger cars, and bigger televisions to the small fraction of the population that was living large. A handful of businesses did not abandon their roots, such as Wal-Mart and McDonalds. Their focus on Middle America never wavered. That explains why November sales were higher than expected at Wal-Mart (same-store sales up 3.4 percent) and McDonalds (up 4.5 percent) while almost everyone else reported sharp declines. Now businesses are playing catch-up. They must reacquaint themselves with Middle America, and fast.

American Business, meet Middle America:

Where men’s earnings have been declining for more than two decades. The median earnings of men who work year-round, full-time peaked in 1986.

Where household incomes are shrinking. Median household income fell 1 percent between 2000 and 2007, after adjusting for inflation.

Where, between 2000 and 2006, the average household had already cut its spending on restaurant meals, clothes, new cars, kitchen appliances, outdoor furniture, toys, newspapers and magazines, and a long list of other items.

Where the average home was worth a modest median of $191,000 in 2007, according to the American Housing Survey–and it is worth even less today.

Where, the percentage of people who moved fell to an all-time low of 13 percent in 2006-07 as the housing market seized up.

Where the much vaunted American entrepreneurial spirit is all but dead. The percentage of workers who are self employed fell to an all-time low of 7.1 percent in 2007.

Where the American dream of a college education is fading. The number of students enrolled full-time in four-year colleges fell 4 percent between 2005 and 2006 (the latest data available), according to the Census Bureau.

Where the return on a college degree is shrinking. The median earnings of men and women with bachelor’s degrees who work full-time peaked in 2002 and has fallen by 3 to 4 percent since then, after adjusting for inflation.

Where the out-of-pocket cost of health insurance has climbed 27 percent since 2000, after adjusting for inflation.

Where people are scrimping on health care. The number of physician visits fell 6 percent between 2005 and 2006 (the latest data available), according to the National Center for Health Statistics.

Where 60 percent of workers do not have a 401(k) or an IRA, according to the Employee Benefit Research Institute.

Where a growing proportion of older workers cannot afford to retire. The labor force participation rate of men aged 65 or older climbed 3 percentage points between 2000 and 2007.

Falling incomes. Rising costs. Spending cuts. Long before the 2008 economic meltdown, Middle America had assumed crash positions. If businesses had been paying attention to their customers rather than their cash registers, they could have positioned themselves for the crash as well. Now all they can do is pick up the pieces.

2. Q & A

Net Worth: How Bad Is It?

Although many people are itching to know how the economic crisis has affected the wealth of the average American household, we won’t know the answer to that question for many years.

Sure, we know from the Federal Reserve’s flow of funds report that the net worth of Americans fell by $2.8 trillion in the fourth quarter of 2008. But so what? The big numbers tell you very little about how the average American household is faring. The only reliable, comparable, and comprehensive data on the wealth of American households come from the Federal Reserve Board’s Survey of Consumer Finances (SCF). The SCF produces data at an agonizingly slow rate because it is fielded only every three years. The latest data are from 2004. The 2007 survey–which missed the economic crisis of 2008–will be released in the spring of 2009. The impact of the current crisis on household wealth will not be captured until the survey is taken again in 2010, and we won’t see those results until 2012.

Because of this dearth of data, pundits and reporters fill in the blanks using macroeconomic statistics such as the flow of funds report. These big numbers mask and distort the behavior of individual households, however. The notion that the average American household carries a great deal of credit card debt is one of the distortions originating from macroeconomic statistics. The 2004 Survey of Consumer Finances, as well as surveys by Pew and Gallup, show that most households have little or no credit card debt, paying off their credit cards in full each month. The 2007 SCF is likely to confirm this finding.

Although the 2007 SCF missed the 2008 economic crisis, it should reveal the financial status of households just as the housing bubble burst. It will not tell us where we are today, but it may give us an idea of how far we have fallen.

By Cheryl Russell, editorial director, New Strategist Publications. If you have any questions or comments about the above Q & A, e-mail New Strategist at demographics@newstrategist.com.

BET YOU DIDN’T KNOW

Percent change in average household spending on video rentals, 2000 to 2006, after adjusting for inflation: -35.

3. Bet You Didn’t Know: The Book

Here is the perfect stocking stuffer–the book that explains all our troubles, from falling incomes to credit card debt, from the high cost of college to the low level of savings.

Cheryl Russell, the editorial director of New Strategist Publications and former editor-in-chief of American Demographics magazine, has spent a career connecting the dots. Now you can benefit from her insights in 201 fast-paced and entertaining snapshots of American life. Bet You Didn’t Know answers questions like:

What are the Three Rules of Success?
Who are the poorest 400 Americans?
How many have cheated on a spouse?
Which activity do Americans like the most?
Why is the network news audience so old?
Do blacks like whites?
Whose incomes are growing?
Are children worth the trouble?

4. Check Out These One-Stop Resources for Understanding Who American Consumers Are and How They Spend Their Money

Consumers are slashing their spending, making it vital to get the answers to Who buys? What do they buy? How much do they spend? And, most important, what will they cut as expenses rise?

Now you can get accurate and reliable answers to these questions from the following just-published resources from New Strategist, which are based on data from the Bureau of Labor Statistics that you cannot get anywhere else–including online!

The new 13th edition of the annually updated Household Spending: Who Spends How Much on What, is your exclusive guide to dollar-for-dollar answers to who is buying hundreds of products and services ranging from laundry detergent and phone cards to big-ticket items like homes and cars.

The 14 volumes in the Who’s Buying Series, which can be purchased individually or as a set, give you the big picture about consumer spending by age, income, household type, race, Hispanic origin, region of residence, and education. Each volume focuses on an individual product category, ranging from apparel and beverages to restaurants, transportation, and travel.

Also new from New Strategist are two volumes that examine the many dimensions of men’s and women’s lives as the first decade of the 21st century comes to a close:

For your convenience, all New Strategist titles are available as searchable single- and multiple-user pdfs that are linked to spreadsheets of all the data tables in the book so you can do your own analysis and PowerPower presentations.

BET YOU DIDN’T KNOW

Percent change in average household spending on women’s clothes, 2000 to 2006, after adjusting for inflation: -12.